Bears emerge from brief hibernation

MichaelBaron

NEW YORK (CBS.MW) - U.S. equity markets trimmed losses late in Wednesday's session but still closed lower due to a lapse in recent investor euphoria following two straight sessions of strong gains.

Re-emerging war jitters also played a part in the selling as President Bush again implored the United Nations to get tough with Saddam Hussein and Iraq.

The Dow Jones Industrial Average
DJIA, +0.37%
fell 40.55 points, or 0.5 percent, to close at 8,000.60, while the Nasdaq Composite
$COMPQ
dipped 12.21 points, or 1 percent, to finish at 1,334.33. The S&P 500 index
SPX, +0.18%
lost 0.7 percent to end the session at 845.13.

But the Dow and Nasdaq did get a healthy bounce off their respective session-lows of 7,935.27 and 1,322.12.

Skepticism about the recent buying binge that saw the Dow bounce almost 300 points to close above 8,000 on Tuesday for the first time since Feb. 4 also reared its head.

"I think we are going to re-test the October lows unless there's a strong technical reversal within the next couple of days," said Peter Cardillo, chief strategist at Global Partner Securities. "I don't believe we'll see panic selling but rather stocks will drift down."

Cardillo said he believes the market could rally in a big way once the situation with Iraq is resolved, allowing investors to concentrate on favorable economic data. Listen to complete interview

Breadth was negative with ten of the Dow's 30 components in positive territory. Overall, losers outpaced gainers on both exchanges - 1,974 to 1,225 on the Big Board and 1,965 to 1,209 on the Nasdaq.

Volume was light with 1.07 billion shares changing hands on the New York Stock Exchange and 1.16 billion shares in play on the Nasdaq.

Looming FCC ruling affects Dow components AT&T, SBC

The run-up in AT&T shares and, conversely, the weakness in SBC's stock is at least partially attributable to the Federal Communications Commission's looming decision on scaling back or eliminating rules that require Baby Bells to let rivals use their networks at wholesale rates.

Regulators are set to vote Thursday on the rules, which were put in place in 1996. In exchange for cheap use of their networks, local phone companies were given the right to sell long-distance services.

Analysts are expecting a "watered-down compromise" to come out of the FCC, a development that is viewed by some as a setback for Baby Bells like SBC. See full story.

Caterpillar jumps on upgrade; chip stocks ignore Morgan's optimism

Caterpillar added more than 2 percent to $45.63, after UBS Warburg boosted its assessment of the Peoria, Ill., heavy machinery firm to "buy" from "neutral" and lifted its price target to $50 from $42.

The firm said that "2003 could mark an inflection point in domestic non-tech related capital spending," a development that would benefit Caterpillar. See full story.

UBS also sees signs of a slight increase in pricing power in the machinery marketplace.

The chip stocks pulled back after mounting a slight rally on news of an upgrade in the sector by Morgan Stanley, which raised its assessment of industry conditions to "attractive" from "in-line."

The firm cited valuation, saying the risk-to-reward scenario for these companies has improved in the last few months and that it expects the semiconductor stocks to outperform the overall market during he next 12-to-18 months.

Morgan also upgraded Intel and Texas Instruments
TXN, +0.68%
to "overweight," and boosted Xilinx
XLNX, -0.21%
to "overweight-V" as part of its call.

Gold futures inched higher after a fairly dramatic decline in the two prior sessions. See full story. Bond prices also posted moderate gains. See full story.

Over in the energy sector, natural-gas futures pushed to a fresh two-year high. See full story.

Major indexes unimpressed by 16-year high in Jan. housing starts

Starts of new housing units were essentially unchanged at a seasonally adjusted annualized rate of 1.85 million in January, the most since May 1986, the Commerce Department said.

Starts of new single-family homes rose about 2 percent to a 24-year high of 1.51 million. Building permits for new homes fell about 6 percent to 1.78 million, but permits for single-family homes rose to a record 1.42 million.

"Defying market expectations of a modest decline and once again showing that the housing sector remains in high gear, starts ticked up a further 0.2 percent from the previous months record pace to a new all-time high of 1.850 million in January," said Peter Buchanan, an analyst with CIBC World Markets, in reaction to the report.

Retail sales in Northeast hurt by snowstorm over holiday weekend

In addition, U.S. retail sales for this past President's Day weekend plummeted by nearly $422 million in the Northeast, as compared to the same weekend in 2002, according to ShopperTrak's National Retail Sales Estimate said.

The plunge was the result of the blizzard that accounted for nearly two feet of snow in that region of the country.

Bush again challenges U.N. to threaten Iraq with force

The latest on the possible war with Iraq is that President Bush has again challenged the United Nations to threaten to use force against the country if it does not disarm.

A new Iraq war resolution will be offered to the Security Council either this week or next, a Bush spokesperson said.

Also, the U.S. and Turkey failed to finalize the terms of an economic aid package that would set the stage for the deployment of U.S. troops in that country if war with Iraq comes to pass.

The Associated Press reported that Turkey has delayed a vote on deployment, saying that a multi-billion dollar aid package must be in place to provide compensation for expected damages from any conflict.

"The framework that we are looking for in an agreement has not materialized yet," said Turkish Deputy Prime Minister Abdullatif Sener following a Cabinet meeting.

US economy has 'surprising resilience,' according to Morgan's Biggs

Bringing a decidedly sunny outlook to a snowy session, Morgan Stanley's Barton Biggs said Wednesday that he's still optimistic about the geopolitical outcome, the US and world economies, and stock markets.

"The U.S. economy has surprising resilience," he told clients in a brief note. "If geopolitical events go reasonably well, the unexpected outcome could be how strong the U.S. economy is in the second half of the year."

Biggs said triggers could include a decline in oil prices and "an end to the malaise of uncertainty and fear."

Pru's Yardeni says investors skeptical about ease of war w/ Iraq

Prudential investment strategist Edward Yardeni issued a note before the bell saying that the recent broad weakness in the stock market suggests that, "investors aren't buying the easy and bullish scenario, which more or less assumes that Gulf War II will be a replay of Gulf War I."

However, unless this Gulf War is "disastrously different" than its predecessor, Yardeni believes that "the best earnings model for the first half of the current decade is the first half of the last decade."

Wachovia, Pru to merge brokerage ops; Micron to cut 1,800 jobs

Big news included the confirmation by Wachovia Corp. and Prudential Financial of plans to combine their retail brokerage operations. The deal, which is expected to close in the third quarter, would create the third largest brokerage in the U.S. in terms of assets. See full story.

Shares of MBNA Corp.
KRB, +13.07%
dropped more than 10 percent after the world's third-largest issuer of Visa and MasterCard credit cards said sour loans climbed last month.

The company said charge-offs increased to 5.59 percent in January from 5.18 percent a month earlier and delinquencies rose to 5.02 percent from 4.9 percent. Several Wall Street analysts reduced their profit forecasts for the firm. See full story.

Also, late Tuesday, Micron Technology
MU, +2.70%
unveiled a cost-cutting plan that calls for the elimination of roughly 10 percent of its workforce, or roughly 1,800 jobs.

In addition, Lucent announced that its board named Patricia Russo, president and CEO of the Murray Hill, N.J., telecommunications equipment firm, to the added position of chairman.

Russo will succeed Henry Schacht as chairman. Schacht will remain an outside member of the board.

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